China slips into deflation, reports smaller-than-expected fall in consumer prices

China's consumer prices in July fell 0.3 percent from last year, while its producer prices fell 4.4 percent from the same month last year, as per the National Bureaue of Statistics on Wednesday.

The country's consumer prices fell into deflation in July, while factory gate prices extended their declines, as the world's second-largest economy struggled to revive demand and pressure mounted for authorities to release more direct stimulus.

According to analysts polled by Reuters, the country's consumer price index was expected to drop by 0.4 percent in July, while the producer price index was estimated to fall by 4.1 percent.

China's economic recovery slowed after a brisk start in the first quarter, as demand at home and abroad weakened. Authorities have rolled out a flurry of policy measures to support the economy, with more steps expected.

"Both CPI and PPI in year-on-year terms fell into negative territory and confirmed economic deflation," said Xing Zhaopeng, senior China strategist at ANZ.

Xing expected the CPI to hover around 0 in the second half of the year, saying "it would be hard to manoeuvre monetary policy. The Politburo meeting called for a stable yuan exchange rate, which would conflict with monetary easing."

On Tuesday, China reported a sharp drop in both domesticand overseas demand. Its exports dropped by 14.5 percent in July from the previous year, while its imports fell 12.4 percent in US dollar terms. Both were worse than what analysts had expected.

The sharp decline in he country's imports figure was partly because of commodity price declines.

China will be releasing its retail sles, industrial production as well as other data for July on August 15.